All righty. Good afternoon. Thanks, everybody, for joining us. My name is Matt O'Brien. I'm one of the med tech analysts here at Piper. Very excited and pleased, and thank you so much for coming all the way across country with the Alphatec management team here. On my left here, we've got Todd, who's the CFO, and then Pat, who needs no introduction, but the CEO of the company. Thanks again, thanks so much for coming all the way over. Really do appreciate it.
Thanks for having me.
Of course. So, Pat, maybe let's start with you. The lateral performance in Q3 was outstanding. How do you keep doing that in terms of your lateral execution? And then how much juice is left to squeeze in that side of the business?
Yeah. You know, I would tell you that what's going on in lateral is it's the prized piece, in my mind, of the spine market. I think we're in the very early experience. The vast majority of lateral is still in a lateral position. And I think that just the opportunity for us to continue to learn from the experience, I think we have the most experience with anybody in the prone position. And I think that there's so many ways to continue to improve it. And I think that what you're seeing is a good start. But I think that there's a tremendous amount to go. And I think that there's a tremendous number of opportunities to continue to improve the clinical experience of it. And so I think we're in the very early innings of it.
I mean, where are we at in terms of lateral penetration at this point? And how can you improve it? I mean, it's a great procedure. It still seems like there's a lot of hesitancy to use it because of radiation exposure. And then, okay, what can it get to across the spine or down, actually, at the bottom of the spine? So what's left to do there?
Yeah. The history of spine has been a pieces and parts business, and I think that companies have done a reasonable job in terms of iterating technology. We were talking earlier today, and they haven't done a great job integrating technology. You talk about radiation or radiation reduction, and Valence clearly comes to mind. What we're doing with regard to the navigation, integrating it into the PTP procedure, I think expedites precision. It lessens the amount of radiation. It elevates predictability. It's like things like that will continue to be a catalyst. When we think about spine procedures, that's just the assembly of elements that have all been designed to work together to ultimately effectuate an experience. Again, I think that we're in the very early stages of that.
I think the navigation robotics piece is going to be another catalyst. We have a bunch of 3D-printed implants and things of that nature that will also augment it, where we have a next generation of a patient position that we're starting on. And so I think there just becomes a number of ways to continue to improve the technique in general. And so we see it as, again, very early stages.
So I think because of that, you see surgeons ultimately applying the technique to a broader set of pathologies as the procedure gets better, as they get more comfortable and confident with it. And I think that ultimately we've seen that drive adoption and procedural volume. And when we launched it, we kind of sized the lateral market as maybe $1 billion or so with $2 billion of traditional posterior approach surgery that could ultimately adopt lateral and should ultimately adopt lateral. And I think we're starting to see that. And I think that's one of the things we're excited about.
And when you say that, Todd, are you talking about spondylolisthesis cases, longer deformity cases? And what is it about your technology? Remember, I'm a dunce. I don't know anything. How does your technology enable that whereas others have not been able to?
Yeah. So the position itself is favorable to, say, spondylolisthesis. And so all you're talking about is one vertebral body juxtaposition over another. And so what a prone position provides you is the ability to go to the back, to the front, and back to the back in the same sitting. And so this type of optionality avails itself to these types of pathologies. So when you say, is it spondy? Is it deformity? Is it corpectomy? It's all the above. And so the great part is what you're seeing is you're starting to see an undercurrent of an improvement in spine care that just hasn't existed before. And so you're seeing older patients come on from the sidelines that may have some type of pathology that could be intervened upon where there's less morbidity. The anesthesia time is less. The return to normal activity is higher.
The pain control is better. And so it's like all those things are starting to bring on, I think, more patients as well. And so the demographic of spine surgery is in a great place.
Are you accelerating the market growth of spine right now?
It's so tough to tell. All we're seeing is a favorable market, but we're seeing very sound intervention, and so it provides us a confident view.
Yeah. Okay. But Pat, you've been growing 8-9x the market for a while. And so I think that some people are nervous, like, okay, at some point, it's got to slow. And you're getting bigger. But if you're able to bring people off the sidelines, get these surgical cases done, the market accelerates. I don't even know if it's just Alphatec specific. But how do you make people comfortable, yeah, we can keep growing 8x the market versus, yeah, we need the market to kind of accelerate a little bit for us to keep these kind of growth rates?
Yeah. I guess the way I think about it is we're the recipients of a better ASP. It's like when you look at the company's sales of things. It's like we don't have to do the same volume of procedures to ultimately grow at the same rate. Meaning, say, a historical Stryker ASP was, say, $5,700. Ours is twice that. And so the ability for us to continue to grow the procedural volume or the revenue is somewhat apparent. As we look at just the application of the procedures and you look at all of the different catalysts, I see a disrupted marketplace as a catalyst. I see the navigation robotic piece as a catalyst. I see new implant systems and whatnot that we're adding to the experience as a catalyst. I see the expanded applications as a catalyst.
And so it's one of those things where it's like we're totally bullish on our ability to continue to grow at an outsized rate.
I mean, if you look at the absolute dollars, I mean, you talk percentages. I think we think about the business growth in dollars. And so 2023, we grew $130 million. 2024, we grew $130 million, give or take. I think our guide implies just shy of $150 million of absolute growth year-over-year. And so I think all the reasons that Pat's talked about, I think that's really what's driving the dollar growth and our confidence. And when you look at the demographics of the procedural volume growth and the adoption, I think you get an understanding that every cohort from 2018 onwards has used more procedural volume than they did the year before. And so even if you didn't add another surgeon, you would grow next year for those reasons. And then to add that, we've been growing our surgeons at a net rate of 20%.
And so I think that gives us a level of confidence that, one, we're attracting people who believe what we're doing, and two, that surge in growth ultimately translates into volume growth in the future.
Right. Okay. So Todd, to your point, 20% growth in the new surgeons, the Street's modeling like 16%, 17% next year. I mean, I think you've talked about 20% growth. You're doing well above that. Sorry, LRP, I'm all over the place here. LRP is above 20%, is what you said, or 20%, sorry. You're going to do well above that this year. Is there a point where, okay, it's going to have to ease off quite a bit more than expected? Is that next year? I mean, how do we think about that dynamic, I guess?
Yeah. And I think it kind of comes to if you're asking a guidance question or you're asking where you think we're going to land. We're always going to shoot for 100 and communicate something less than 100 because our guidance philosophy tells us to put numbers out there that we believe we can achieve and a reasonable opportunity to exceed. And so I would tell you, I think the street is probably modeling somewhere around $130 million of growth relative to where we are today. And I think we feel like that's probably a decent spot to be. And so that gives us an opportunity, I think, to continue to shoot for 130, do a little bit better, and continue on the momentum, I think, that we've built. And we're driving for a lot more growth than that. And I think this year we've demonstrated it.
Okay. Pat, you're not trying to go a little slower? You're not trying to go slow with these things?
Yeah.
Yeah. Okay. So then just talk about the ability to keep attracting these clinicians. You're attracting quite a bit of them. Is it just more disruption in the GMED, NuVasive thing, or Stryker, now eventually J&J? Or is it something beyond that where you're really benefiting?
Yeah. I would say it's a multitude of things. As I think about kind of from the restart, how we built the business is we built it procedurally. And I think what's happened is we've seen adoption of the procedures. And then we've seen expansion of the utility of the procedures. And we've seen expansion of the complexity, kind of as I said. And then in the background, we have this looming ecosystem, really, that's foundationally built around EOS. And I would tell you that the vast majority of the surgeries that we've participated in to date has been mostly on the degenerative realm, meaning three levels or less. But looming in the background, we continue to evolve this EOS platform into more of an informatics tool.
I think as you continue to walk and you start to see the reflection of that, you're going to see a continued contribution of that influence. So historically, Alphatec would have never got into Penn, would have never got into UPMC, NYU, HSS, Northwestern. All of these places now are places that we do business at different levels, for sure. But the foundational understanding as it relates to where the predictive elements are going to go within spine is becoming clear. So the infrastructure investments that we had previously made are starting to be reflected. They're not going to be massively reflected until, call it, 2026, 2027, 2028. But the reality is we got this great procedural business that's churning at a very high clip. And we have a catalyst of an informatics ecosystem that has yet to see the value that we've ultimately designed into it.
Okay and you talk about some of these places you're getting into. Do you see a surgeon champion and then a mushrooming effect to like, hey, you should take a look at this? How does that work? And I guess where are we kind of at with that trend?
Yeah. Again, depending upon how long that we've been in each of the institutions, kind of dictates how the mushroom effect has taken place. And I would say that that's a reasonable kind of reflection. It's like we literally are in the very, very early stages. We talk about Pennsylvania. Pittsburgh and Philly are two places that we couldn't catch a cold. And so we're starting to do business in those places now. And so we're in the very, very early phases of that. We're starting to become more mature in New York and New Jersey. And so we've had a three-and-a-half-year commitment to this area. And so it becomes one of these things where it's like I think there's this expectation that these are overnight affairs. And what we tell everybody is these are 18-24 month walks.
And the reason we so love the demographics of the environment is who's willing to make a long-term commitment to this space? Is it private equity? Is it a conglomerate? And so our view is the opportunity in the space is unbelievable. And we love the disruption. And we love the lack of focal commitment to this space because we're making it. And we'll continue to make it.
So, I think back several years ago, it was like, hey, we just don't have coverage. And then we didn't, hey, we don't have focus. And then, hey, we don't have these products. Or there are certain geographies where we're just underpunching our weight. What's the next leg of growth for you guys? Is there something to point to? And you've been mentioning imaging. Is that what it is? Or is there, hey, look, there's still room to go as far as, hey, there's certain geographies where we just don't have we can be much bigger. And then imaging and robotics can help after that.
Yeah. I mean, pipe in here. But it's like I would tell you that we have a long way to go with regard to building the sales force. I would tell you we're probably the fifth or sixth largest sales force in spine. And so I would tell you that Medtronic, Globus, J&J, Stryker, probably and then us in terms of just the size of the sales force. It's like we've got to grow our sales force. And we've contemplated that within the context of how we've contemplated the business. Again, I think that if you look at deformity surgery, both idiopathic and adult deformity and early onset for that matter, it's got an opportunity to evolve in such a monstrous way.
Again, so I look at it as the near-term opportunities are for us to continue to build out a sales force that has complete relevance and a full bag with extraordinarily elegant procedures. And then as we look into 2027, 2028, you are going to start to see the influence of an informatic element that ultimately will continue to evolve a field that needs evolution.
Yeah. And if you think about just the geographic, if you just say, hey, we're a 10% market share player-ish in the U.S., the markets where we are most penetrated, we're in the 20% market share. So that just tells you that there's a ton of opportunity to just get up to what we would consider our fair share in areas where we are. And there's plenty of places where we aren't, to Pat's point. And so I think there's a ton of geographic run. I think when you look at it procedurally, lateral still has our penetration of the existing lateral market has great opportunity, not to mention the posterior approaches that aren't or that should be a lateral approach. We think that we're uniquely positioned to take that share.
And then you understand where we are in deformity at the very early edge of that wedge and how that gets leveraged off of EOS and the work we're doing there. I just think there's a ton of ways to look at this.
How do you get those posterior cases to flip over to lateral that should be lateral?
So I think some of that is what Pat talked about in terms of PTP and its position. But I think it's one of the beauties of how we're approaching navigation robotics and the integration of Valence into that procedure, which addresses the concerns around radiation associated with lateral, the predictability and the efficiency of the procedure. I think those are the big things that keep people from coming in.
Okay a nd you mentioned lateral a few times or lateral robotics a few times here. And I know you kind of begrudgingly got into the space. I think that's fair. What can you bring to the table from a robotics perspective that your big competitors don't already have? And as I understand Valence, and I could be wrong, just correct me right here, is that seems like it's really earmarked kind of for the ASCs. And I don't think ASCs are really going to adopt a lot of robots. I don't think. I don't know. But where am I wrong as far as thinking that Valence is really targeting that side of care? And then why are you going to see good adoption there?
Yeah. I think that there's a misnomer of looking at the footprint of a device and its influence. And I think that hospitals are sick of buying capital for the OR. And that excludes EOS. EOS is an independently reimbursed environment that's outside the OR. But again, I think that the beauty of Valence is that it's at a footprint that's not going to take up a bunch of space. And it's at a cost of goods that enables us to be creative with regard to integration into the operating room. And so I think the elegance of the integration of the thing will dictate how successful we are. I have a high level of confidence that it's going to do exactly what we intended to do.
I think the beauty is the very engineering talent that created Valence are the same guys who created Stealth back in 1995. It is not a passive group. These guys understand what they're doing. And so the ability for us to be more mature than what one would expect in the early experience of that device is very high. And so the ability to place the units, the ability to integrate it into the workflow of the experience, I would tell somebody, if you protect the price of my implants and you do it over a long period of time and commit some level of volume, I would place it based upon the cost of goods. And so I'm not going to wait for a long capital cycle to ultimately place these things. We're going to be as disruptive as we possibly can.
Okay. And I think that plays out in the ASC as well as a small community hospital as well.
Yeah. So based on, I wouldn't want anything to get misconstrued. You're talking about sales force isn't big enough and that you're probably going to be aggressive in terms of placing Valence systems. I'm sure people are going to start to get nervous about spending. And so how do we think about your OpEx in the environment where you're trying to continue to build for growth and augment your business with robotic systems?
You take the second half of this because it's going to involve numbers. But such a big part of these things are can you design and develop these things to not require a bunch of people to have to run them? I think the early experience is you're going to have to have some support element in the operating room. But the intention is for our spine guys to be running these things. Our spine guys run Stealth today in certain cases. And so it's one of these things where it's like you want to design and develop the experience such that what you're able to do is have a single person run the entire experience.
Right. And much like we have with SafeOp, we've got a handful of guys who are experts in SafeOp and technically supportive of that technology. And I think we think of Valence as very much a similar thing. And quite frankly, the first year is going to be a very disciplined approach to rolling this out, to getting a good experience. And so I think any concern about having to add a ton of resources is not founded in reality. Second is the COGS on this relative from an ASP and a COGS standpoint. It's pretty consistent with our overall margins. And so it's not a huge spend. And I think as we think about the capital allocation to sets and inventory along with robots, very much is contemplated in our $0.75 on the dollar ratio. So I think there is no confusion.
We're very understanding and confident of our capital allocation to both the REMI, excuse me, the Valence, and the sets and the inventory required to drive the growth next year.
Okay. Got it. And I could call it REMI all day long as well. So I mean, I guess, Todd, you guys made a big investment in sets in 2024. You're really reaping the benefits of it now. Do you need another big tranche of instruments just given the growth that you're seeing? Or are you going to start to just get more productivity out of what you have?
Yeah. So a couple of things there. I think high level, what we laid out in our long-range plan contemplated a construct of $0.75 of investment in sets and inventory to drive a dollar of revenue growth year-over-year. And I think if you looked at what we invested in 2024, around $120 million or so, and about the $40-$50 we'll invest this year, you combine that, I think over that two-year period, that ratio is going to bear itself out. One of the reasons why profitability in 2025 was so important was so that we could get to a profitability level in 2026. We're exiting 2025 into 2026 that we're throwing enough EBITDA off the business that it will fund the investment required to grow the following year. And so that's where we're at today.
And so our confidence in the ability to take what we're dropping through from a profitability standpoint, reinvest that in sets and inventory to drive more revenue growth without having to raise more capital. We're there now. That's where we are, self-funding. And to do that and be able to throw off some cash flow next year, that's really what we've grown ourselves into. And that's why the inflection in 2025 was so critical to the self-funding nature of what we're doing.
Understood. Okay. All right. So last few minutes here. Pat, get it. Lots of opportunity on the lateral side and just traditional lumbar and DeGen. You're morphing into deformity. You're going into cervical. I covered K2M. They did fine in deformity. But probably I think people wanted more cervical. NuVasive never really found its footing there. That didn't quite find its footing. How can you, what have you learned from those situations or those experiences? And how can things be different? And how can you keep growth in those categories for you guys at the rate you're doing on the DeGen side?
Yeah. I think that again, I think if you look at the durability of spine surgery and you look at the revision rate in spine surgery, it's not because of misplaced screws. That would mean the robot would be an unbelievable tool, right, if it's all misplaced screws. The problem is I think surgeons are forced to act with an amount of gestalt that's candidly unfair to them. And it's like, what's my experience? And what are the variables that are driving this pathology? And so we believe that there's a real informatics deficit. And so just the opportunity to provide surgeons an amount of information that ultimately drives decision-making that creates a level of predictability we believe to be apparent. And so the first one is clearly alignment. And so for us to automate the experience in terms of driving a prescribed alignment, we think is very apparent.
The literature would highly support that. The most correlative to durability is alignment. The other thing is bone mineral density, and so we just in the last couple of weeks got clearance for our BMD assessment by level. And so that's unique to us. So to take a single pass on EOS and get all the alignment measures from an automated perspective, be able to get all of the BMD measures by segment, and to create a surgical plan from that, we believe will evolve the field. And so when you start to think about K2M and look at some of the history of deformity surgery, you're talking about pieces and parts. We made a reducer. We made a way to derotate the spine. Those are all mechanical goods. What they aren't is informatics that drive decision-making.
And so our view is that the sophistication associated with that field requires more information. And we're providing that. And we feel like it's a substantial opportunity. It's going to take time to play out. But again, with the momentum that we currently have, we're going to play it out and make sure that we do a great job on that. But imagine the ability to say, hey, this patient has a high likelihood for a junctional issue, which means they fall off at the top. You may want to go up a couple of levels. Maybe the BMD is bad. You may want to skip that level. Our ability to provide information for surgeons to make better decisions, we think is an opportunity within a business realm that is highly fascinating and opportune.
Got it. All right. Well, it looks like we're just about out of time. So we'll go ahead and cap it there. Really do appreciate all the feedback today.
Thanks.
Thanks so much.